Will Governments And Central Banks Recognize Cryptocurrency
When times get rough, it is good to have someone in authority who can help the financial system adapt to shocks. Monetary policy includes many tactics that help to regulate and stabilize the economy. If all money were in private crypto networks, these tools would not be available, and we would be on our own. Many central bankers around the world are looking closely at cryptocurrency to learn and see if some of the advantages can be adopted into central bank digital currencies.
Many hope that this research is accelerated. If the central banks of the world wait too long to create widely acceptable cryptocurrencies, much of the population will increasingly put their confidence in these private currencies that innovative programmers think up. Of course, it is fine to have these private cryptocurrencies, but it would also be comforting to know that the central banks are also leading and innovating money so that the dependency on the private sector for crypto is not exclusive.
The pressing question when it comes to the value of money is this – who do you have more confidence in – governments, the precious metals industry or computer programmers algorithms?
The Quest For A New Inflation
In these very volatile years of COVID-19, quantitative easing, explosions in the stock markets, populist governments, negative interest rates, Brexit, and dire warnings of inflation, gold was expected to explode but it has hardly moved much at all. It has about the same value as it had in 2012. On the contrary, since 2012 Bitcoin has moved from being worth less than $1 to more than $ 40,000.
Could it be that the money that previously flowed into gold in times of turbulence is now flowing into Bitcoin?
The Economist magazine reported that in Q2 of 2020, just the Ethereum cryptocurrency alone settled $2.5 Trillion worth of transactions which was the same amount as Visa.
We are living through a major milestone in the history of money. And while uncertainty cloaks the future value of Bitcoin and Ether, it is certain that these experiments will herald a new age of money that might be independent of governments and central banks.
A Guide To Cryptocurrency Backed By Precious Metals
For the past several years, Bitcoin and other decentralized cryptocurrencies have grown in popularity. Even so, many are still unsure about trading these digital tokens. This apprehension is primarily due to the high volatility cryptocurrency is infamous for and the risk of loss. As a result, some want their virtual currency to be pegged to a more stable asset, like dollars or gold. This type of crypto goes by the name of stablecoin and garners a lot of attention for its reliability.
Stablecoins are linked to various assets like dollars or precious metals. These include gold, silver, platinum, and palladium, and these unions create entirely new crypto-like Platinum Coin or Silver Coin. Because they are pegged to these metals and dollars, they experience less market volatility than cryptocurrencies like Bitcoin often do. Those who trade stablecoins do not typically suffer a huge loss when trading because stablecoins never drop below the underlying asset price.
Crypto backed by precious metals are gaining more attention and appreciation, which means that it is essential to understand what they are.
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Why Does Bitcoin Have Value
Bitcoin does not have the backing of government authorities, nor does it have a system of intermediary banks to propagate its use. A decentralized network consisting of independent nodes is responsible for approving consensus-based transactions in the Bitcoin network. There is no fiat authority in the form of a government or other monetary authority to act as a counterparty to risk and make lenders whole, so to speak, if a transaction goes awry.
The cryptocurrency does display some attributes of a fiat currency system, however. It is scarce, and cannot be counterfeited. The only way that one would be able to create a counterfeit bitcoin would be by executing what is known as a double-spend. This refers to a situation in which a user “spends” or transfers the same bitcoin in two or more separate settings, effectively creating a duplicate record.
What makes double-spending unlikely, though, is the size of the Bitcoin network. A so-called 51% attack, in which a group of miners theoretically control more than half of all network power, would be necessary. By controlling a majority of all network power, this group could dominate the remainder of the network to falsify records. However, such an attack on Bitcoin would require an overwhelming amount of effort, money, and computing power, thereby rendering the possibility extremely unlikely.
Why Betting On Gold
The newest financial tech can be backed by one of the most ancient and important precious metals. Is it a step forward or a step back?
Gold has been regarded as an eternal value since times immemorial. This shiny metal still acts as a store of value especially in countries like India. Due to its exclusivity, gold is an essential element of the global financial system, and since this metal is not subject to corrosion, it has many areas of technical application. Unfortunately, the metal is heavy, its transportation is fraught with certain difficulties, and storage costs a lot of money.
The last century, however, has brought more changes within the existing world monetary system than all the previous millenniums. Following the national fiat currency advents, the digital world with electronic money has stepped in over the past 20 years, and we are now close to seeing the establishment of e-money 2.0 with the help of emerging blockchain technology. We are witnessing an asset fusion process taking place, where digital currencies are backed not only by public interest and hype but also by the particular assets or commodities. But the question is, can the past merge with the future to provide better financial solutions?
Related: The Unstoppable Trajectory: Stablecoins Are Evolving Traditional Finances
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Why Use A Gold
Gold-backed cryptocurrencies are great for investors new to precious metals. They provide a way to easily get involved in investing, making the industry more accessible to all.
On top of this, gold-backed cryptocurrencies allow investors to circumvent a lot of the more stressful parts of precious metals.
For example, investing in precious metals requires you to verify your identity, find a space to store the metals, and generally pay additional fees.
You can sign up and purchase a gold-backed cryptocurrency in minutes, especially on platforms like GoldExchange.com.
Theres next to no hassle in doing so. These assets allow you to invest in fractional amounts of gold.
You dont need to put money into an entire ounce of gold like with traditional investing. Gold-backed cryptocurrencies let you invest as little or as much as youd like.
Overall, these assets are much less cumbersome and streamline the investment process as much as possible.
What Is Crypto Backed By
Cryptocurrencies are generally not backed by any one entity, like banks or governments. Instead they rely on a web of nodes to maintain the network and traders to determine the value . Exceptions to this rule are stablecoins and commodity-backed cryptocurrency as these have their price pegged to the underlying asset or fiat currency.
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Should You Invest In Gold
Almost any type of real-world asset can be converted into a cryptocurrency token. As long as it’s something that investors want to trade and they would benefit from having a tokenized version of the said asset, you can find a blockchain project somewhere working on doing exactly that.
This includes cryptocurrencies backed by fiat currencies, real-world assets like stocks and real estate, as well as commodities. Gold-backed cryptocurrencies have popped up recently as an intersection between the crypto and gold ecosystems. If you’re a gold investor or a crypto investor, should you consider buying some of these gold-based tokens right now?
How To Evaluate Gold
The best gold-backed cryptocurrency is one that you are certain is genuinely backed by gold and that you can redeem for physical gold when needed.
The exact procedures for validating a coin will vary between projects. For example, sometimes you might take it as a matter of trust that a coin is genuinely backed based on the reputation of its issuer, while other times you might want to do a thorough check via independent auditors.
But generally, to validate the backing of a gold-backed cryptocurrency, you can:
- Confirm that the cryptocurrency is backed by physical gold: To verify the gold backing of a cryptocurrency, you can look for independent third party audit reports or other documentation, and then contact the auditor to confirm that the documentation is genuine.
- Confirm that the gold backing matches the amount of coins in circulation: Once you’re convinced that there really is gold backing the tokens, you can look at the token contract on the blockchain to see how many coins there are in circulation and confirm that it matches the gold held in reserve.
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Choosing Solid Ground For A Stablecoin Project
Thus, we can conclude that by using gold as the underlying layer to a stablecoin, its creators increase the chances of a project failure.
However, its unlikely that these statistics are reviewed by many of the industrys finest. Tether , a controversial but significant platform issuing stablecoin, has recently announced its plans regarding the launch of a digital asset providing exposure to physical gold . There have been reports of other crypto-based platforms also working on similar products such as Coin Shares, which has been exploring the possibility of launching a gold-backed cryptocurrency. While Bitcoin has often been regarded as digital gold, only the future will tell whether either Tether Gold or another similar project comes out on top.
Related: Is Bitcoin a Store of Value? Experts on BTC as Digital Gold
Despite the fact that the possible benefits of fusing both physical and digital assets may look lucrative, this is not timely innovation in crypto ecosystems. Tether is infamous for having problems with auditing fiat, which can easily be audited in electronic form. Moreover, as gold can be easily replaced with Tungsten, only more auditing issues arise.
Related: Tether Case, Explained
Moreover, it can be used to fix the gap between the classical financial industry and steadily maturing digital assets.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
The Advantage Of Metal As A Reserve Asset
Countless civilisations have treasured precious metals like gold, silver, platinum, and palladium for their utility and beauty. Bullion is recognised and accepted across the world for buying and selling.
While many think precious metals are only valuable as a monetary tool, many have a wide range of industrial and manufacturing uses. Palladium is a vital component in catalytic converters to remove hydrocarbons, carbon monoxide, and other potentially harmful gases from vehicle exhaust emissions. The converter is one of the most expensive parts of a vehicle often costing up to $1,000 alone.
The vast majority of silver mined in the modern world is a byproduct of manufacturing. The industrial uses of precious metals give them an additional allure of value, making them in the eyes of some a stronger stablecoin base than fiat currencies stablecoins like Basecoin.
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The True Value Of Money
The first time that paper money was used in China, more than 1000 years ago, it was also met with confusion and widely condemned. Just like crypto today, it was not the government that originally invented it. When making large coin-based transactions proved difficult, merchants came up with a mechanism where pieces of paper had text inscribed on it indicating its value. Transactions were completed by handing the paper-note after which parties visited warehouses where the exchange of coins took place.
Incidentally, the warehouses that stored large volumes of bulky coins became the first banks. As paper grew in popularity, the government outlawed it and surprisingly thereafter, issued its own notes as legal tender and the worlds first real national paper money was born.
Interestingly, a thousand years after those original paper notes were banned, China has now banned cryptocurrencies. Could history repeat itself with China doing what it did a millennium ago – this time developing a regulated cryptocurrency? El Salvador on the other hand recently made Bitcoin a legal tender. It goes to show how extremely different the views of cryptocurrency can be and for this reason, are we in the early stages of a reinvention of money?
Memecoins And Other Strange Cryptocurrencies
There are thousands of cryptocurrencies available. Many of them have little to no value, and no discernable value proposition, which lands them in the category of memecoins. Experts recommend avoiding investing in this category of coins and sticking with more well-known options like Bitcoin or Ethereum, if you decide to invest in crypto at all.
Whoppercoin and PutinCoin fall into this category of cryptocurrencies, as does another famous memecoin of recent fame: Dogecoin. While Dogecoin has seen a rise in demand and thus value in recent weeks, it still is highly volatile, as evidenced by its drop in value when Tesla CEO Elon Musk made it the subject of a joke on a recent episode of Saturday Night Live.
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What Is A Gold
The biggest advantage that digital versions of gold hold over their physical counterparts is that they can be divided into any small unit or amount and transferred to another party.
Gold-backed cryptocurrencies have, however, historically struggled with systemic issues, such as:
- low liquidity
- ascertaining the proof of reserves
- a dependence on central parties for collateral safekeeping and auditing, which practically defeats their purpose as cryptocurrencies, as one of the necessary properties of cryptocurrencies is decentralization.
- Paxos Gold
- Perth Mint Gold Token
- Digix Global
The Icing On The Cake
Forces that drive the prices of precious metals higher are spectacular. They include the mass devaluation of currencies, bond and stock bubbles and the geopolitical chaos.
Silver and gold do not require block-chain technology to be big winners. However, the number of gold-backed block-chain products is going to increase in 2018. The result will be a potential jump in the demand for physical gold because the promoters of gold-backed cryptocurrencies will have to acquire precious metals to back their products.
While gold price is likely to soar in 2018 the block-chain connection will be a great help. That is the icing on an already tasty cake.
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What Is A Backed Currency
A backed currency is a form of currency that comes with a guarantee that it can always be exchanged for a predetermined amount of another asset. For example, a currency backed by gold may have a guarantee that 100 units of the currency can be traded for an ounce of gold.
The most common assets to back a currency with are gold and silver, but a currency can be backed by anything. Starting in 1879, the U.S. dollar was backed by gold, largely due to golds and scarcity, important characteristics of money.
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A currency can also be backed by another currency. This is known as a pegged currency. By backing a currency, you guarantee that it will always be worth at least as much as it can be traded in for. However, backed currencies can easily lose their credibility if citizens lose faith in the governments ability to maintain the fixed exchange rate. In this case, black markets for currency exchanges arise, allowing the real exchange rate to emerge.
How To Buy Gold
If you are ready to buy a gold-backed cryptocurrency, you will most likely need to buy it with Bitcoin or Ethereum. For ICO purchases, Ethereum might be the only payment available if the token is running on Ethereum. You can buy Bitcoin and Ethereum at Binance , and then send the funds as per the instructions given by the gold token you are buying.
For more information, read the guide on how to buy gold-backed cryptocurrency.
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Why Traditional Currencies Have Value
There are six key attributes to a useful currency: scarcity, divisibility, utility, transportability, durability, and resistance to counterfeiting. These qualities allow a currency to find widespread use in an economy. They also limit monetary inflation and ensure that the currencies are secure and safe to use.
Currency is useful if it works as a store of value or, to put it differently, if it can reliably maintain its relative value over time. Throughout history, many societies used commodities or precious metals as methods of payment because they were considered to have a relatively stable value.
Rather than carry around cumbersome quantities of cocoa beans, gold, or other early forms of money, societies eventually turned to minted currency as an alternative. The first such currencies used metals like gold, silver, and bronze, which had long shelf lives and little risk of depreciation.
Assigning value to currencies is a matter of debate. Initially, their value came from intrinsic physical properties. For example, gold’s value comes from the costs of extraction and certain qualitative factors, such as luster and purity content.
This thinking hews closely to the modern credit theory for monetary systems. In this theory, commercial banks create money by lending to borrowers, who use the money to purchase goods and cause currency to circulate in an economy.
Gold Backed Crypto Exchange
A gold-backed crypto exchange is pretty much the best place to invest in such assets. For one, these are the platforms that generate stablecoins. They offer the most value for your investment, often providing quality-of-life trading features and wallets for storage. Some also enable you to invest anonymously.
Not only this, but these exchanges often allow you to redeem your digital gold for physical bullion. Of course, you may have to reveal your identity for this, so they can provide it to the right person.
Such platforms generally audit their holdings and make the results publicly available for trusts sake. Some are even available 24/7 for the ultimate ability to check their legitimacy.
Specific exchanges allow you to invest in fractional amounts of gold, too, increasing the assets accessibility. You can put in as little or as much as youd like an option not possible on traditional exchanges.
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